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Prospects Daily: Philippines receives investment grade rating, US labor market improves, India’s central bank cuts rates

Global Macroeconomics Team's picture
Financial Markets…U.S. Treasuries continued to weaken, with the benchmark 10-year bond yield climbing 7 basis points to 1.7%, after strong U.S. jobs data in April boosted growth prospect and limited demand for safe-haven assets. In contrast, U.S. equities and the dollar strengthened following the April nonfarm payrolls report.

Spanish government bonds advanced on Friday, pushing the 10-year note yields below 4% for the first time since 2010, amid speculation that the European Central Bank might consider further stimulus measures to boost the economy even after yesterday’s 25 basis points rate cut. Italian bonds gained as well, with 2-year note yields sliding below 1% for the first time ever.

Philippine’s financial markets rallied today after the Standard & Poor’s upgraded the country’s credit rating to investment-grade status. The Philippine Stock Exchange Index gained 1.7% to a record closing, while the peso strengthened 0.4% versus the dollar to a one-month high of 40.903. The yield on the Philippine’s government bond due September 2016 tightened 15 basis points to 2.1%, the lowest level in a week.

High-income EconomiesUS non-farm payroll employment increased by 165K in April, up from revised 138K in March and 332K in February. The latest data reflects a combined upward revision of 114K. The unemployment rate edged down to 7.5 percent in April from 7.6 percent in March.

Separately, US durable goods orders (ex. transportation) slowed in March to 9% (3m/3m saar), down from 14.3% at the end of 2012Q4. Meanwhile, ISM service sector PMIs dropped to 53.1 in April, down from 54.4, the lowest level since July 2012.

Slovenia issued $3.5bn of bonds on Thursday, easing concerns that the country will have to be bailed out by the eurozone to pay for its banking sector clean-up. The bond sale was initially delayed after Moody’s downgraded Slovenia’s credit rating by two notches to “junk” on Tuesday.

Developing EconomiesEurope and Central Asia: Turkey’s inflation slowed in April to 6.1% (y/y), lowest level in two years and down from 7.3% (y/y) the previous month. Lower food inflation as well as base effects stemming from electricity and gas hikes in April 2012 contributed to the lower inflation print. Inflation has been above the central bank’s target of 5% for two years.

Latin America and the Caribbean: Brazil’s industrial production picked up in three months ending March by growing 3.3% (3m/3m saar), up from 0.4% contraction in 2012Q4. Production of capital goods led the expansion as it grew for the third straight month in March.

South Asia: India's central bank cut its benchmark interest rate by 25 basis points to 7.25% for the third time since January as growth slows and inflation ebbs. However, it warned that the risk of inflationary pressure persists and high current account deficit poses the biggest risk to the Indian economy.

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